Electrovaya Q4 2023 Earnings Call Transcript

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Provided by Quartr
January 3, 2024

There are 7 speakers on the call.

Operator

Greetings. Welcome to the Electrovaya Q4 and Year End 2023 Financial Results Conference Call. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation. Please note this conference is being recorded.

Operator

I will now turn the conference over to your host, John Gibson, Chief Financial Officer. You may begin.

Speaker 1

Thank you, Holly. Good morning, everybody, and thank you for joining today's call to discuss Electrovaya's Q4 2023 and fiscal year end results. Today's call is being hosted by Doctor. Raj Das Gupta, CEO of Electrovaya and myself, John Gibson, CFO. Today, Electrovaya issued a press release concerning its business highlights and financial results for the 12 month period ended September 30, 2023.

Speaker 1

If you like a copy of the release, you can access it on our website. If you want to view our financial statements and management discussion and analysis, you can access those documents on the new SEDAR Plus website at www.sedarplus. Ca or on the SEC's EDGAR website atsec.gov/edgar. As with previous calls, our comments today are subject The number of provisions relating to forward looking information, we will provide information relating to our current views regarding market trends, including the size and potential for growth and our competitive position within our target markets. Although we believe that expectations reflected in such forward looking statements are reasonable, They do obviously involve risks and uncertainties and actual results may differ materially from those expressed or implied in such statements.

Speaker 1

Additional information about factors that Actual results to differ materially from expectations and material factors or assumptions applied in making forward looking expectations may be found in the company's press release announcing the Q4 and full year fiscal 2023 results and the most recent annual information form and management discussion and analysis under risks and uncertainties, as well as in other public disclosures filed with the Canadian and U. S. Security regulatory authorities. Also, please note that all the numbers

Speaker 2

Thank you for joining our fiscal year end call. I'd like to extend our apologies for the late filing this year. John, our Financial Controller, our auditors and myself have worked tirelessly over the last few weeks. Given the unforeseen complexity, the process has taken longer than we hoped. John will go over it in more detail.

Speaker 2

However, We are very pleased with where the business is today and more importantly our forward trajectory. We just reported the strongest fiscal year in our history. Our financial results for the year are impressive With record revenue growth of 170% over the last fiscal year and more than $3,200,000 in adjusted EBITDA, We have clearly passed an inflection point. Our accomplishments demonstrate our continued commitment to execution and profitable growth. I'd like to reflect on a few of the key milestones we achieved over the year and our vision going forward.

Speaker 2

1st, we delivered a strong 4th quarter Despite headwinds, including a 3 week port strike, which resulted in higher expedite fees and higher transportation costs. While this affected our gross margins for the quarter, I'm confident we will deliver incremental improvements to margins for fiscal 2024 and beyond. The pace of production, optimization of our supply chain and the strength of our products and backlog have positioned the company for continued growth and a strong fiscal 2024. Increased sales of battery systems for material handling especially at large corporations derived the majority of our revenue. Over the last year, we consistently drove Revenue and order growth and our backlog is at the highest level in our history and includes a diversified base of large Fortune 100 and Fortune 500 end customers.

Speaker 2

2nd, In November, we announced a new 3 year strategic supply agreement with Raymond Corp and a related entity of similar or larger size that we believe will support our continued success in the material handling sector. Together, these OEMs control more than 50% of the North American market for Class 1 to 3 material handling equipment. As this industry continues to evolve, I believe the strong OEM relationships will be central to our long term success. While most battery systems that we produce to date have had drop in design with digital integration, We believe that the longer term trend will be for fully integrated battery systems. We are already working on numerous projects of this nature.

Speaker 2

The Material Handling sector will continue to represent a high growth, high margin business for the company. With respect to electrified Class 1 through 3 segments, we estimate that our penetration with our first OEM partner is under 10%. Market indications for the lithium ion penetration rate suggest that this will increase to approximately 50% by 2027, about 5 times our current production rate. Our latest OEM partner Also ship significant numbers of electrified Class 1 through 3 vehicles, which we are beginning to see growing opportunities for. Importantly, this OEM has a significant number of internal combustion engine powered vehicles for which there are legislative pressures to electrify.

Speaker 2

I'm optimistic that Electrovized Batteries are going to be a meaningful component of this electrification strategy. Electrovaya continues to make a strong push into other verticals with heavy duty profiles. This includes electric bus, truck, mining vehicles and energy storage, which all require high voltage systems. We are broadening our market reach, including through the launch of our high our Infinity high voltage product line. Since July 20, when we announced the line, which takes advantage of our core strength of safety and cycle life, We've had considerable interest and have just shipped our first product to a global Aerospace and Defense Corporation.

Speaker 2

We have also received additional orders for these products for diesel replacement systems. More importantly, we are in late stage negotiations with a well established multinational bus manufacturer for an electrified transit bus with a planned start of production in late 2025. This contract should we get it could potentially have similar revenue profile as our current OEM customers in the material handling sector and would represent a major win for the company. Recently, we also established a relationship with 1 of the 4 Largest Japanese Trading Houses. Through this partnership, Electrovaya products are being marketed to a host of Japanese and international OEMs, representing a significant boost to our sales reach.

Speaker 2

Our team at Electrovaya continues to make steady progress with With respect to our solid state battery program, we are producing our own proprietary ceramic material that has been shown to have Very high ionic conductivity, perhaps higher than any similar materials in the literature. We are also developing An innovative separator that takes into account the internally developed ceramic materials. While it is Still too early to determine whether these advances will lead to a commercially viable product, we are pleased with the progress achieved to date and we'll continue investing in Our manufacturing site in Ontario supports approximately $130,000,000 worth in annual revenue. Despite this, we expect to require additional capacity by mid-twenty 25. Furthermore, we are making progress in closing a facility to finance capital investments for our Jamestown facility.

Speaker 2

It does get a bit more complicated due to separate working capital facilities in Canada and we expect refinancing the Canadian side to occur at a similar time. Despite this, we believe we are still on schedule to force Our team has visited our selected equipment suppliers, completed engineering studies and hired several key personnel. That said, we will pursue large scale investments only in the event that we close the debt facility, which needs to include advantageous terms with minimal impacts to operating cash flow and equity dilution. If we are unable to secure such financing, we expect that there will be limited Financial impact as investments made to date are primary land and building, which can be sold at a profit. That said, I firmly believe that this Funding and expansion will happen and benefit the company tremendously.

Speaker 2

With that, I would like to pass the call to John Gibson, We will go into the financial results in more detail.

Speaker 1

Thanks, Raj. First of all, I'd like to reiterate our apologies for the delay and our appreciation for investors' patience at this time. As Raj mentioned, fiscal 2023 was a big year for the company, representing some key inflection points from a business and financial Electrovad's business has grown substantially over the last year, including significant increase in revenue, adjusted EBITDA, Staffing and also the recent listing on the NASDAQ Stock Exchange. With these seismic shifts, the accounting has become more complicated. In September, we engaged a new audit firm MMP as the previous auditors were understaffed for the current size and complexity.

Speaker 1

1st year audits always tend to take longer than expected as the audit team learns about our business and our processes as a result of some of the discussions that we had during the audit. Management restated the financials for fiscal year 2022, which are included at the end of the financial statements. The restatement pertains to functional currency revenue, the addition of the Jamestown asset to the balance sheet in 2022 and the non cash valuation adjustments to warrants and performance based stock Most of these updates are non cash in nature and further explained in our financial statements and MD and A. From a numbers perspective, revenue for fiscal year 2023 was $44,100,000 compared to

Speaker 2

the restated

Speaker 1

$16,300,000 in fiscal 2022, increase of 170% year over year. This substantial revenue increase was due to sustained execution of growing orders and the operational transformation of the company in general. Importantly, our adjusted EBITDA grew by nearly $7,000,000 to a positive $3,200,000 for the year. This figure gives us strong capability to continue our growth plans and support our working capital facilities. With regard to operating profit, we had a total operating profit for the fiscal year of $1,200,000 and maintained that operating profit for the last three quarters of the year.

Speaker 1

Our overall net loss for the fiscal year was $1,400,000 an improvement of more than $8,400,000 from the prior year. Looking at Q4 specifically, we had revenues of $11,900,000 an increase of 86% year over year and adjusted EBITDA of 1,200,000 And overall net profit of $800,000 Gross margins were up year over year, however, slightly reduced from the prior quarter due to expediting higher transportation, storage costs stemming from the July port strike in Vancouver. One thing to note is that we actually achieved the Q4 revenue in approximately 8 weeks due to the parts delays as a result of the port strike. We expect gross margins to normalize in the next quarter and are anticipating overall gross margin improvement. Finally, a portion of the previously reported revenue for the quarter was adjusted into Q1 2024 due to the previously mentioned accounting adjustments.

Speaker 1

Company generated positive cash flow from operating activities of $2,400,000 for the fiscal year compared to a cash use of $2,500,000 in the prior year. This also demonstrates the continued improvement improved financial and operational performance of the company. As of September 30, 2023, the total debt was $16,300,000 compared to $20,700,000 in the prior year. Company, as always, continues to manage its cash conservatively. We believe we have adequate liquidity to support our anticipated growth for fiscal year 2024.

Speaker 1

That concludes the financial overview. I'll now return the call to Raj for concluding remarks.

Speaker 2

Thank you, John. For my concluding remarks, I'd like to start off with our guidance for fiscal year 2024. We are providing guidance for fiscal year 2024 Revenue in a range of between $65,000,000 to $75,000,000 bearing unforeseen circumstances. This represents approximately 59% growth at the midpoint. We are confident in this guidance giving our existing strong backlog and line of sight on additional orders.

Speaker 2

Importantly, we have the team and the capabilities to meet this demand in a timely fashion. The vast majority of the revenue guidance is for our mature low voltage material handling battery product lines. However, there will be some engineering and seed deliveries of new product lines as well. These new products Combined with continued growth in the Material Handling segment sets Electrovaya up for further growth in 2025 and beyond. The overall electrification movement, especially that for heavy duty for the heavy duty segment is still in its nascent stages.

Speaker 2

And I believe with our technology advantage, Electrovaya stands to become the leading battery player for this important section of the market. As with all successful businesses, the team, the technology and the market timing needs to coincide And that's what I see happening here. We are also in a unique position with regards to our financial performance. There are not many, if any battery companies in North America who have demonstrated the capability to grow with a sustainable and profitable trajectory as we clearly have demonstrated. We intend to continue this mentality and vision as we continue to grow rapidly in years to come.

Speaker 2

That concludes our remarks this morning. John and I would now be pleased to hold a question and answer session.

Operator

Certainly. At this time, we will be conducting a question and answer session. One moment while we poll for questions. Your first question for today is coming from Eric Stine with Craig Hallum. Eric, your line is live.

Speaker 3

Yes. Can you hear me?

Speaker 2

Eric, we can hear you.

Speaker 4

You can. Okay. Got it. Good morning, guys. So, obviously guiding the strong revenue For fiscal 'twenty four, and I know that just the nature of your business, you've got great visibility into that.

Speaker 4

Just wondering Maybe the range, some of the things that would be would mean you'd be low end of the range, what gets you to the high end of the range? And then just also maybe some thoughts on linearity of that growth throughout the year.

Speaker 2

So the growth wise, As with previous years, we expect it to be second half weighted. That said, we have like you said, we have Pretty good visibility. The high end of the range is assuming 1 of our Fairly regular customers places a sizable order, which they have placed in previous years. They just haven't communicated that to us as yet. So that's really giving that range.

Speaker 4

Got it. And low end, I mean, just again, the nature of your business, I would think low end is something that you have a high level of confidence in just given your backlog And trends?

Speaker 2

Correct. The low end is based is a very conservative or I would say a conservative figure based on a Firm backlog plus orders that have been communicated verbally at least.

Speaker 4

Yes. Okay, good. Maybe next one, so and over the last couple of months here since the 3Q report, You had a number of presentations and I've noticed some new names, new customer names on the list here like retail, Target, Logistics, FedEx, I don't know if you are able to speak specifically to those customers, but maybe just Talk about the trends you're seeing in these various segments as you kind of expand your reach to different applications.

Speaker 2

Well, in the Material Handling segment, I'm pleased to say that we are not really dependent on any one name. If you look back just a few years ago, let's say in 2022, we had one single e commerce company which ordered Approximately 70% of our production that year. In 2023, it was Fairly diversified. I would say there are 5 big names there and we expect 5 names to still Add up to like let's say 80%, 90% of our revenue. But you listed some of those names there.

Speaker 2

I'd say we have Our most consistent buyers are 3 retailers, all Fortune 500 and Fortune 100 names. We're seeing growth in the Food Distribution segment, we're working with probably the world's largest group there. And we're pleased to say there's a growing list of very Well known customer names that consistently buy our products.

Speaker 4

Got it. That's helpful. Maybe last one for me. Just you mentioned the large trading house, the new agreement with the trading house in Japan. Maybe You gave a little bit of detail, but just curious what maybe early returns there and what that eventually looks like.

Speaker 4

I mean, What do you envision this is, as part of your business if you look out, say, a year or 2 or longer?

Speaker 2

Yes. It's still early days there. So that's why we haven't made a big song and dance about it. However, It's looking very promising. So we've already bid on a number of OEM Projects, especially in, let's say, the Construction and Mining segment through this Japanese trading house, Because we supply a well known Japanese institution already, it gives us A little bit of credence for growing the market there.

Speaker 2

So I'm optimistic that we will see Some growth and some new opportunities come up in Japan.

Speaker 3

Okay. Thank you.

Operator

Your next question for today is coming from Pavel Molchanov from Raymond James.

Speaker 5

Good morning. Thanks for taking the question. Can I First ask about Jamestown? So you mentioned still looking for financing to support that. Do you have a timetable in mind?

Speaker 5

So for example, if you were to secure financing first half of twenty twenty four, What would be the kind of trajectory of construction and startup?

Speaker 2

First of all, we expect to close that financing in that period. The reason we haven't closed it Thus far has some to do with our Canadian debt facility, which also needs to be refinanced Because the current lender that we work with doesn't have the capability of the U. S./Canada Complexity there. So we need to we're trying to have almost a simultaneous Refinancing of the Canadian facilities with the more project financing for the Jamestown expansion. So that's happening in the background.

Speaker 2

That said, We've still been working out the details on the engineering side and the equipment side. So we haven't really lost any time there. We're expecting to need to place orders on equipment in the Q1 of calendar year 2024, so between now and the end of March. I'll give you some examples where We have already had a team out there visiting suppliers in Asia. We are going back to Japan, for instance, to work with our contract Sure.

Speaker 2

To train our team on the separator Manufacturing process and in preparation to bring that into Jamestown. So there's a lot of work that's taking place In parallel to the financing efforts. Does that sort of answer your question Pavel?

Speaker 5

Very clear. Appreciate that. Can you also get an update on what's going on with the Solid state R and D efforts?

Speaker 2

So the solid state efforts, I generally don't like I'll talk about it too much because it's not generating revenue and nor will it generate revenue in the near term, but we're making good progress. The team is focused on 2 areas specifically. 1 is making the ceramic itself. So if you look at other companies in solid state battery space, they're generally looking to use Ceramics is the ion conducting element there. And so we've developed our own proprietary ceramic material that so far is looking very promising to have Extremely high ionic conductivity and we're working out the kinks on the processing for that material right now.

Speaker 2

So that's one area that we're focused on. The second of course is on the ceramic separator itself. So that's incorporating Our proprietary ceramic materials into a unique separator membrane. So we're taking a lot of the lessons learned of our existing Infinity based battery separator product. So I'm optimistic.

Speaker 2

We're in a good position to develop an exciting solid state battery product. But again, it's early days. There's a lot of work still to go. It's tough research. No one has commercialized this type of product to date.

Speaker 2

There's lots of talk about it, but We're firmly in the race.

Speaker 5

Okay. Last question, just a quick one on the guidance. What percentage of the $65,000,000 to $75,000,000 do you expect to come from the Material handling customer base?

Speaker 2

Basically all of it. We have not taken into account the other Products in a big way. And the reason for that is number 1, to be conservative. And number 2 is, For instance, the high voltage system product, which we've just started making shipments, those are really going to They're basically going to engineering preproduction programs, which then could lead to Mass Production Programs and that takes time. So it's going to be an incredibly important year To develop those relationships and those contracts, but in terms of revenue, that product line is not going to generate Anything significant.

Speaker 5

Got it. Okay, understood. A conservative approach to guidance. Appreciate that. Thanks again.

Operator

Your next question for today is coming from Jeffrey Campbell with Seaport Research

Speaker 6

First of all, Happy New Year and congratulations on the strong quarter. First question is, is the strategic supply agreement limited to North America or does it apply to all markets in which the OEMs operate?

Speaker 2

We're already selling to other markets. So for instance, our batteries are powering e commerce sites in Australia, we're shipping batteries to, I think, Colgate in Thailand And lots of sites in South America. So it's not exclusive to North America. That said, the exclusivity Part of the agreement is for North and South America.

Speaker 6

Okay, great. I wanted to ask a few quick questions regarding the twelvetwenty sixtwenty three press release, The first Infinity high voltage battery shipment. First of all, can you clarify if the shipment was an HV300 or an HV700 system?

Speaker 2

It was a 300 system.

Speaker 6

Okay. And Can you remind us of just round numbers, what's the expected sales price of the $300,000,000 maybe when it's commercialized?

Speaker 2

It depends if it's going into a this system we shipped was to an aerospace company. That's going to be Relatively low margin, but no, high margin, low volume. If it's going into a transit bus, It's going to have a quite a different price. So it's I would say we're targeting Margins to be consistent with the material handling product. So by the time this product goes into mass production, Should come out of Jamestown, New York.

Speaker 2

We'll be able to leverage IRA benefits and we should be able to Maintain around 30% gross margins on it.

Speaker 6

Okay. That's helpful. Can you have any color on the New vehicle type that the system was ordered for? That sounded sort of provocative.

Speaker 2

It may be provocative. So we don't know much about it, to be honest. Okay.

Speaker 6

And I guess the last part on that is, can you estimate Your 2024 HV system production capability prior to Jamestown. I know you said it's preproduction, but Just maybe some sense of how many of these things you can put together for the people that are really interested in it?

Speaker 2

Quite a number. So we did invest in an automated line here in our Kitimat plant. So we can turn out PACS pretty with pretty good regularity. We're expecting the Kitimat location though to be Fairly busy with our low voltage products. So the intention is to build these packs in Jamestown.

Speaker 2

We did train. We did hire a great gentleman in Jamestown Who's going to be the plant manager and he's well aware that this is the product which will be built first there. So the plan is to build it down there. I would say it depends on the I'm not expecting significant demand, But if that does come, we will be able to meet it.

Speaker 6

Okay. And final question, based on your earlier remarks today, it fair to say that the new Japanese relationships focus is on the high voltage battery systems?

Speaker 2

No, no, it's everything. This company, they own they have their fingers in lots of areas, As you may guess, and their marketing are even our material handling battery products, So everything.

Speaker 5

Okay, great.

Speaker 6

Okay, again, thanks and congratulations on the quarter.

Speaker 2

Thanks, Jeff.

Operator

Your next question is coming from Oren Hirschman at AIGH Investment Partners.

Speaker 3

Congratulations on the product on the progress and some of the product development, which is what I want to ask about. So you mentioned some of the new Technologies you're working on, the separator, etcetera. I just want a clarification. Do those affect both your existing product as well as the solid state? Important in both and if it's the existing product, does it create better performance or it's a gross margin improvement or both?

Speaker 2

For the separator? Is that what you're Yes. The Infinity separator is a very stable product. We're not really seeing any change to the separator design Other than our plan to produce it in Jamestown and in Japan. But that's a Mature product, it's what I would say for Product development in terms of the Infinity technology is you will see continued improvements in energy density without sacrificing the core cycle life and safety advantage.

Speaker 2

And it's that core cycle life and safety advantage, which is really what makes the Infinity product, so compelling for the heavy duty market. The separator that I mentioned to Pavel's question is the solid state separator That is a new material altogether, which has a different ceramic, which is proprietary and a unique separator design as well. So That's the one that's still in development and I would say that's going to be in development for most of 2024 at least.

Speaker 3

Okay. And just one more question in terms of Jamestown or actually before that just in terms of buses, Electric Buses, what's going on from a general government push perspective and Just a little slice of perspective, how does that dovetail with your timing? And are you hopeful that there's more than one nature customer right now, just Focus on that one major customer?

Speaker 2

So, we are there's more than one. Now if you look at the North American Bus transit bus market, there are really 3 or 4 Large OEMs who control 80%, 90% of that market. That's what our main focus has been and we're talking to 2 of them. And one of them is the one I mentioned, which we think we can we're close to winning a supply contract. Our feeling is once we close a supply contract with one of those types of OEMs, it's going to make It's less risky for other OEMs to use our product.

Speaker 3

So These are the big boys. These are not some of the less well financed start ups?

Speaker 2

No, no. The one we're closest to is a very large group who's been making That was for 100 years, something like that.

Speaker 3

Okay. And just finally on Jamestown, I know this is going to be a very wide range answer, but any idea what kind of capacity That could give you at some point in time?

Speaker 2

So the first phase of Jamestown, etcetera. It depends on mix. The first phase of Jamestown is approximately 300 megawatt hours. And the reason we use that figure is it takes advantage of the existing building And that's the building footprint. So that's what we can fit into that building.

Speaker 2

And that also meets Quite a lot of our requirements. However, if demand continues to go up as we anticipate, we will Need to go larger. One event that happened recently was the Department of Energy, the U. S. Department of Energy Announced a new grant program, which is specific to heavy duty, Off road and other applications, which fits perfectly with our mandate.

Speaker 2

So that application is due end of March, and we are going to apply. That would, if we are successful, provide us significant funding to go to that second stage where we're looking at Approximately 2 to 3 gigawatt hours of capacity.

Speaker 3

Okay. And just to frame it, if I look at your current facility, Again, give or take based on mix, what's the capacity at full gear at $130,000,000 or so of sales? What kind of How does that translate into energy, give or take?

Speaker 2

Yes. In Kitimat, the 130, That's about 200, maybe more. My Yes. I know

Speaker 3

it's a guess.

Speaker 2

Maybe we'll talk offline about that.

Speaker 3

Great. Okay. Thank you. And thank you for getting the numbers out so quickly After the announcement, we really appreciate that.

Speaker 2

Thanks, Oren. It was John and I have had a lot of reduced sleep the last

Speaker 3

couple

Speaker 2

of days, put it that way.

Speaker 3

Okay, great. Thank you so much.

Operator

Your next question? We have reached the end of the question and answer session. And I will now turn the call over to the management team for closing remarks.

Speaker 2

That concludes our call this morning, and thank you all for listening. We look forward to speaking with you again after we report our Q1 2024 results. Have a wonderful day and happy New Year to everyone.

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Electrovaya Q4 2023
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